The Wisdom of Bill Gurley
A Commentary on Tariffs and American Competitiveness
With the inflation print coming in hotter than expected at 3% and tariffs threatening to push it even higher, the United States faces fundamental questions about how its policy decisions will affect its competitive future, and more broadly, the continuity of Pax Americana. Lately, I’ve found myself increasingly resonating with Benchmark Partner Bill Gurley’s arguments against tariffs in his recent BG2 Podcast.
In this post, I examine American competitiveness from two perspectives. First, at the policy level, tariffs are undermining U.S. competitiveness and economic stability, which we already see from the volatility in the capital markets. Second, within pockets of American industry, a superiority complex is resulting in industrial complacency, which, if sustained, will lead to another "DeepSeek moment." Specifically, I cover the following:
Why tariffs are detrimental to the United States long-term, drawing on Bill Gurley’s insights on the global EV industry and workforce trends
How a superiority complex is eroding American competitiveness and industrial vigilance, using Uber’s entry into China as a case study
Why blanket tariffs do not work, though there are cases where state intervention is necessary to ensure fair competition
How policy should instead focus on capturing strategic technology “pinch points,” using the semiconductor industry as an example
Why American companies should seek to outrun the competition, rather than running to the protective embrace of the state
Let’s dive in.
The nuanced view on tariffs
Whether the United States should continue/escalate tariffs is a heated topic, especially against the backdrop of today’s geopolitical environment. One argument in favor of tariffs is that countries like China have provided state subsidies for their domestic industries (or have restricted market access altogether) in a bid to grab market share, before raising prices once competition has been eliminated. Tariffs in this case serve to equalize the playing field and help restore American industry. Another argument is a strategic one - tariffs on Taiwan’s semiconductor industry are meant to reshore critical technologies. Online personality Anthony Pompliano’s blog post captures these sentiments and argues why tariffs have “worked” in the past.
These arguments unfortunately tend to be cherry-picked or analyzed too short of a time horizon. My position here is that blanket tariffs are net negative to a country’s long-term competitiveness and economic outlook. Here, Bill Gurley’s thoughts on the BG2 podcast on the current tariffs align closely with my thought process. In the podcast, which stars Benchmark Partner Bill Gurley of Uber fame and Altimeter Founder Brad Gerstner, Bill argued that tariffs have a much shorter effective duration than policymakers initially envision. He also highlights workforce trends as an additional factor in declining American industrial competitiveness. Excerpts of the podcast are reproduced below (starts at the ~37 minute mark):
So, if the United States goes through with levying tariffs on its major trade partners, then new trade flows will emerge to exclude the US. This means that eventually, the rest of the world will have access to the best products, at the most competitive prices. American products, in contrast, would be confined to serving the domestic market. This is already happening. Take automobiles as an example, Detroit’s triumvirate of GM, Ford, Stellantis cannot field a globally competitive EV (I had written about this on ChinaTalk last year). And, due to the tariffs in place, the US consumers don’t have access to the best bang-for-buck EVs, so the situation now is that a Southeast Asia consumer has access to better vehicles than Americans do. Tesla is the only Western at-scale manufacturer that can compete with Chinese logos, though its sales have also recently plummeted.
Bill’s second point is that American workers are no longer competitive globally. This is a controversial take — but Bill is correct. Developing countries that want to have a chance of catching up must outwork their developed counterparts. Just as America captured the workforce dividend in the decades prior, developing countries are doing so now. In some ways, developed nations have earned the right to reap the benefits of past successes. But the expectation that a standard 9-5 will still be competitive globally is at this point an anachronism. Workforce trends aren’t the only reason for China’s success, as China has also invested heavily in various long-horizon strategic priorities, from its Made in China 2025 initiative to its emphasis on math and science in its primary & secondary curriculums.
So far, the policy response to the threats to American competitiveness has been tariffs & sanctions, and the situation has been framed very much an us vs. them by policymakers. This makes sense! If you are the leader of a country, your imperative is to maximize the benefits to your nation. Brad Gerstner, in the same BG2 podcast, articulates this sentiment well:
But as Bill argued — tariffs are not the long-term panacea to America’s problems.
The dangers of industrial complacency
While policymakers grapple with the macro implications of tariffs, an equally concerning pattern of dismissiveness and a sense of superiority is emerging within American industry, which could prove just as damaging to America’s long-term competitiveness as policy missteps.
The launch of DeepSeek’s R1 model has been viewed as a “Sputnik moment” in American public discourse—forcing difficult conversations in companies like Meta as the social media giant begins to mount a response. And AI isn’t the only potential Sputnik moment! China is also accelerating its innovation in other industries, such as in the biotech industry, which Alex Telford from Convoke recently highlighted in his deep dive. But there are equally loud voices that have been very dismissive of DeepSeek’s technical achievements. This has even prompted a response from Yann LeCun, Meta’s Chief AI Scientist (also known for his hot takes on LLMs), reproduced below:
This sense of superiority is somewhat justified. For decades after World War Two, the US led in frontier research and maintained an undisputed military primacy. But now that competitors have narrowed the gap, this superiority needs to be examined. That said, founders and investors who have actually competed globally have a healthy respect for foreign competition. A recent All-In Podcast featuring Uber founder Travis Kalanick is a good case study as Travis looks back on the early days of Uber’s expansion into China (starts at the ~50 minute mark):
Travis’s experience is a microcosm of the developing country playbook: copy initially, and upon reaching parity, switch to innovation. We see this happening across industries for Chinese companies as they shift from imitation to innovation, from ByteDance popularizing short-form videos as an entertainment modality (which YouTube Shorts and Instagram Reels have copied) to DeepSeek’s FlashMLA implementation (which Western frontier labs are sure to copy).
Given the increasing parity between American companies and their global counterparts, does American industry retreat / retrench, relying on government protection to hold on to its domestic market? Or, does it embrace change and find new ways to win, as Andy Grove and Gordon Moore did for Intel in the chip giant’s pivot from memory to logic (as told in Only the Paranoid Survive). My view here is that at the policy level, the state’s role is to ensure a fair “playground”, and making sure that the US captures specific technology pinch points. At the industry level, however, my views are more Darwinian.
The dilemma for policymakers
Starting at the policy level — the open question is: what is the actual purpose of the tariffs under the current administration? Is it a bargaining chip in trade negotiations to try to get China/Canada/Mexico/the EU to capitulate (on trade imbalances, the flow of illegal migrants, fentanyl, etc.)? Or, is the purpose of the tariffs to ensure fair competition and reshore American manufacturing?
Assuming that tariffs are actually geared towards the latter — how should policymakers respond to potentially unfair competitive practices? Going back to our EV example, China wouldn’t have had its current EV industry without Tesla laying the foundations for China’s local suppliers. This helped jumpstart local OEMs that are now challenging Tesla’s market share (though Tesla also likely wouldn’t have survived without the white carpet treatment & production capacity out of Shanghai). In many such industries, China has historically utilized a policy of nurturing nascent domestic industries and having domestic companies compete with each other to the death, before a small handful of national champions emerge to take on global competition. This killing has already begun China’s EV industry, as I wrote in as a guest author on ChinaTalk, and will probably soon happen to China’s AI startups (六小虎 / Six Tigers). There’s also a very fair argument with respect to reciprocity — if American companies aren’t allowed to compete in certain countries, then perhaps companies like TikTok shouldn’t exist in the US either.
What about strategic industries? In general, I favor policy that incentivize, rather than hinder innovation (e.g. the boneheaded SB 1047 AI bill would have significantly slowed innovation, but was luckily vetoed). It also makes sense to have state-industry collaboration in order to “own” specific technology and manufacturing capabilities such that any economic or kinetic conflicts become unpalatable for potential aggressors.
The semiconductor industry is one example of an industry that requires the state to step in to underwrite R&D and production risk (e.g. the CHIPS Act). American semiconductor fabrication might never be competitive globally on a cost basis alone, but it does represent crucial national security interests that must be maintained domestically, as I had written about nearly two years ago. Here, capital is an instrument of statecraft, ensuring the US maintains essential capabilities in the event of conflict or supply chain disruption. The unfortunate thing here is that there are calls to repeal the $52B CHIPS Act (despite the money being mostly spent), while China just announced its own $138B venture fund to catch up and leapfrog the West. Another challenge is determining which industries deserve this “special treatment,” as the debate could quickly devolve into elected officials advocating for their own constituencies.
Pax Americana, balanced on a knife’s edge
Outside of these aforementioned strategic areas, most other industries need to earn their right to exist via competition and innovation. Former Singaporean Prime Minister Lee Kuan Yew summarizes these views well:
The United States, despite various headwinds, remains structurally advantaged for continued success with its unparalleled access to top talent, risk capital, and existing technological base, so there’s really no reason for American companies to beg for more protection. The main question now is whether US companies still have the ingenuity and grit to maintain their top dog status, because no country nor company has a perpetual right to the mandate of heaven. My intuition is that the best American companies relish this competition and will continue to win. Ultimately, we’ll see in the coming years whether Prime Minister Lee Kuan Yew will be proven right once again, or whether American Exceptionalism fades into a beautiful, but brief dream.
Huge thanks to Will Lee, John Wu, Aaron Wong, Ying Chang, Yash Tulsani, Lisa Zhou, Monica Xie, Jeff Niu, Maged Ahmed, and Andrew Tan for the feedback on this article. If you want to chat about all things investing, ML/AI, and geopolitics, I’m around on LinkedIn and Twitter!
Excellent article! I enjoyed it!